ALJDEC decisions subject to certification as final

2019A-04135-NPC-ROC · Registrar of Contractors · 2020-03-26

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Arizona Custom Millwork and Contracting Inc.,

COMPLAINANT

Danson Construction LLC,

ROC License: ROC 247197,

RESPONDENT

No. 2019A-04135-NPC-ROC

ADMINISTRATIVE LAW JUDGE

DECISION

HEARING: March 5, 2020, 8:30 A.M.

APPEARANCES: Fidelis V. Garcia, Esq., appeared on behalf of Complainant; John G. Ryan, Esq., appeared on behalf of Respondent

ADMINISTRATIVE LAW JUDGE: Roger A. Geddes

_____________________________________________________________________

FINDINGS OF FACT

Background and Procedure

1. Danson Construction, LLC (Respondent), is the holder of License Number 247197 issued by the Registrar of Contractors (Registrar).

2. On or about August 14, 2019, Arizona Custom Millwork and Contracting, Inc. (Complainant), filed a Complaint against Respondent with the Registrar alleging that Respondent owed Complainant the sum of $44,960.86. The Complaint and supporting invoices included therein reflect that this amount represented the remaining unpaid amount on a $365,400.00 Master Subcontract Contract (“subcontract”) entered into between Respondent, the general contractor, and Complainant, the subcontractor, for millwork in connection with a Pinal County Superior Court expansion (“project”).

3. On October 28, 2019, the Registrar issued a Citation for Alleged Violation of A.R.S. § 32-1154(A)(10) for the alleged failure by Respondent to pay monies in excess of $750.00 when due for materials or services rendered in connection with Respondent’s operations as a contractor. The Registrar referred the matter to the Office of Administrative Hearings, an independent state agency, for an evidentiary hearing. The Registrar issued a Notice of Hearing setting a hearing after a continuance was granted for March 5, 2019, at 8:30 A.M.

4. At the March 5, 2019, hearing, Complainant presented the testimony of Tamara Westfall, co-owner of Complainant, and Jeremy Westfall, co-owner and project manager of Complainant. Respondent presented the testimony of Daniel Fontana, President of Respondent. The Tribunal received and admitted Complainant’s exhibit bates stamped numbers 9, 15, 17, 19, 20-69, 72, 134-143, 158, 236, 264-265, 301-302, 313, 315, and 346 and Respondent’s exhibit numbers 1 and 3-5.

5. Tamara Westfall testified on behalf of Complainant that she was responsible for the accounting and bookkeeping functions of the project. She stated that because of a credit made to Respondent’s balance, Respondent now owed $44,140.95. She further testified that Respondent asked her to bill Respondent $40,000.00 on July 7, 2017. (Complainant’s Ex. 301).

6. Ms. Westfall testified that Complainant engaged the services of subcontractors to assist it with the project, namely, Tradesmen International (“Tradesmen”) for insulation and Gino’s Finishing Touch (“Gino’s Finishing”) for cabinetry and touch up of the wall panels in the courtrooms. She stated that Tradesmen performed work for Complainant in June-July 2019 with its last day on the job for Complainant on July 16, 2019. (Complainant’s Ex. 20, 33). She further stated that Gino’s Finishing performed work for Complainant in July-August 2019, with its last day on the job for Complainant on August 5, 2019. (Complainant’s Ex. 15, 17, 19).

7. Jeremy Westfall testified on behalf of Complainant that he was at the project a minimum of four days a week. He stated that Complainant finished its work in mid-July 2017, with the last person on the job for one task on August 18, 2017. (Complainant’s Ex. 72). He further testified that Complainant’s work was substantially complete before the grand opening of the building held on July 19, 2017 (Complainant’s Ex. 313) and the dissemination of the general contractor/owner job punch list for Respondent’s subcontractors on July 25, 2017 (Complainant’s Ex. 47-69), that was to be completed by those subcontractors by August 4, 2017. He also stated that Complainant did all its work in-house, but needed to hire subcontractors for the project because of an accelerated and condensed schedule imposed upon it by Respondent due to delays on the entire construction job. He stated that neither Tradesmen nor Gino’s Finishing did any punch list items for Complainant and that Gino’s Finishing was doing other work on doors that was not within Complainant’s scope of work.

8. Daniel Fontana testified on behalf of Respondent that Subcontract Change Order No. 3, dated November 6, 2017 (“Change Order No. 3) (Respondent’s Ex. 3 (000063)), reflecting a chargeback amount of $83,015.00 to Complainant that he contended totally offset any amount due Complainant and in fact created an obligation owed from Complainant to Respondent. Change Order 3 reflects that the $83,015.00 amount was comprised of amounts Respondent paid to subcontractors, Tradesmen and Gino’s Finishing, to redo or supplement Complainant’s work ($22,015.00) and of amounts representing liquidated and other damages caused by Complainant’s delay in completing its work ($61,000.00).

9. Mr. Fontana stated that Change Order No. 3 was prepared by Project Manager Mark Borodkin and reflected that Respondent expended the amount of $7,415.00 to Tradesmen with supporting invoices reflecting work performed by Tradesmen from July 11, 2017 (Respondent’s Ex. 3 (000077)) to August 19, 2017 (Respondent’s Ex. 3 (000066)) and the amount of $14,600.00 to Gino’s Finishing with supporting invoices reflecting work performed by Gino’s Finishing from July 19, 2017 (Respondent’s Ex. 3 (000088)) to August 30, 2017 (Respondent’s Ex. 3 (000084)).

10. Mr. Fontana testified further that while other trades caused delays, including the HVAC contractor, the special systems contractor, and the electrical contractor, he stated that Complainant also caused delays in the overall construction job. (Respondent’s Ex. 4 (000093 - 000102)). He stated the entire job was behind five months at the end, but that Respondent had negotiated the job delay to 40 days with the owner. He further stated a $2,000.00 per day liquidated damages stipulated in the general contract with the owner resulted in an $80,000.00 reduction in payment from the owner to Respondent. Of that amount, he stated Change Order No. 3 allocated 20 days or 50 per cent of that delay to Complainant ($40,000.00). He also stated that due to Complainant’s delayed performance, Respondent allocated 20 days of “general conditions costs” or something in the nature of overhead costs to Complainant at $1,050.00 per day ($21,000.00).

11. Mr. Fontana further testified that the owner paid the full retention payment to Respondent in November 2017, and had paid the full general contract amount less the negotiated $80,000.00 for the overall construction delay. Documentation presented instead reflected such a payment was made after March 2018. (Respondent’s Ex. 1 (000047-48)). In either case, Respondent did not assert that it lacked the capacity to pay the amount Complainant contends is due.

CONCLUSIONS OF LAW

1. The Registrar has jurisdiction over this matter, pursuant to A.R.S. § 32-1101, et seq., which authorizes the Registrar to impose disciplinary sanctions against licenses for violations of A.R.S. § 32-1154.

2. The burden of proof at an administrative hearing falls to the party asserting a claim, right, or entitlement and the standard of proof on all issues in these matters is by preponderance of the evidence. See Arizona Administrative Code Rule 2-19-119.

3. To warrant such sanctions by the Registrar, Complainant must demonstrate by a preponderance of the evidence that Respondent violated the statutory section cited. Proof by a “preponderance” means that “the evidence is sufficient to persuade the finder of fact that the proposition is more likely true than not.” In re: Arnold and Baker Farms, 177 B.R. 648 (9th Cir. BAP (Ariz.) 1994). See also Culpepper v. State of Arizona, 187 Ariz. 431, 930 P.2d 508 (App. 1996). It is “evidence which is of greater weight or more convincing than the evidence which is offered in opposition to it; that is, evidence which as a whole shows that the fact sought to be proved is more probable than not.” BLACK’S LAW DICTIONARY 1182 (Rev. 6th ed. 1990).

4. At the time of the Citation, A.R.S. § 32-1154(A)(10) included among the grounds for suspension, revocation, or other disciplinary action against a contractor’s license:

[f]ailure by a licensee or agent or official of a licensee to pay monies in excess of seven hundred fifty dollars when due for materials or services rendered in connection with the licensee’s operations as a contractor when the licensee has the capacity to pay or, if the licensee lacks the capacity to pay, when the licensee has received sufficient monies as payment for the particular construction work project or operation for which the services or materials were rendered or purchased.

5. A.R.S. § 32-1154(A)(10). Complainant has satisfied its burden to demonstrate that Respondent has failed to pay Complainant the amount of $44,140.95 that had become due for materials or services rendered in connection with Respondent’s operations as a contractor. Respondent did not dispute the actual amount Complainant sought under the subcontract. Rather, Respondent contended that backcharges attributable to work performed by Tradesmen and Gino’s Finishing on behalf of Respondent due to Complainant’s unfinished or deficient work offset the amount owed by Respondent. Additionally, Respondent contends that backcharges attributable to alleged delay on the part of Complainant further offset that amount.

a. Tradesmen backcharges: Respondent sought to backcharge Complainant the amount of $7,715.00 in Change Order No. 3 for work performed by Tradesmen on behalf of Respondent from July 11, 2017 (Respondent’s Ex. 3 (000077)) to August 19, 2017 (Respondent’s Ex. 3 (000066)) that was allegedly within Complainant’s scope of work. However, Respondent failed to present sufficient evidence to show such work was within Complainant’s scope. Tradesmen invoices presented by Respondent to support its position are completely lacking any description of the work performed by Tradesmen and Mr. Fontana testified that he did not know what work was done. Thus, Change Order No. 3 is in itself insufficient to support a backcharge of $7,715.00 or any other amount. There was no other evidence presented to support a finding that Tradesmen’s work performed on behalf of Respondent was within Complainant’s scope of work and therefore the Tribunal finds that this backcharge is unwarranted.

b. Gino’s Finishing backcharges: Respondent sought to backcharge Complainant the amount of $14,600.00 in Change Order No. 3 for work performed by Gino’s Finishing on behalf of Respondent from July 19, 2017, (Respondent’s Ex. 3 (000088)), to August 30, 2017, (Respondent’s Ex. 3 (000084)), that was allegedly within Complainant’s scope of work. Respondent has further failed to establish that such work was within Complainant’s scope. Invoices submitted by Respondent reflected that the work performed by Gino’s Finishing for Respondent was similar to the work performed by Gino’s Finishing for Complainant. However, Respondent did not nor could the Tribunal reconcile Gino’s Finishing work performed for Respondent with work remaining to be completed by Complainant in the July 25, 2017, punch list (Complainant’s Ex. 47-69). Presumably any unfinished or deficient work on the part of Complainant would have been included in the punch list. However, the work performed by Gino’s Finishing for Respondent does not appear to be directly related to items included in the punch list to be performed by Complainant.

Moreover, even if the work performed by Gino’s Finishing for Respondent was directly related to punch list items, the evidence presented did not link Gino’s Finishing work with punch list items that were identified to be the responsibility of Complainant. First, Gino’s Finishing invoices supporting Change Order No. 3 in the amount of $8,450.00 reflect work on “3rd Floor Lobby Hallway” in August 2017 (Respondent’s Ex. 4 - 000083, 000084)) and the amount $5,300.00 for repair of third and fourth floor doors and frames in August 2017. (Respondent’s Ex. 4 - 000088)). However, there does not appear to be any reference to work needed for the third floor lobby hallway in the punch list. Further, no explanation was provided for this omission or for why Complainant was responsible for this task.

Similarly, with respect to the repair of doors and frames on the third and fourth floors referenced in the invoices supporting Change Order No. 3, it is further not clear that such repair was the responsibility of Complainant. For example, with respect to the punch list items relating to doors in third and fourth floor rooms 3404, 4401, 4404, 4408, 4409, 4410, 4412, and 4413, the list identifies Complainant and Kelly Bros, another subcontractor of Respondent, as the responsible subcontractor with a question mark presumably questioning which of the two was responsible. (Complainant’s Ex. 52, 59-61). Further, the punch list items relating to door repair in third and fourth floor rooms 3401, 3402, 3403 3405, 3406, 3408, 3410, 3411, 3419 3423, 3425, 3427, 3429, 3431, 3435, 3443, 4401, 4402, and 4405 identifies the responsible subcontractor to be solely Kelly Bros, not Complainant. (Complainant’s Ex. 53-57, 59). Moreover, with respect to the punch list relating to door repair in third and fourth floor rooms 3434, 3444, 3445, 3446, 4414, 4416, 4420, 4421, 4422, 4423, 4425, 4427, 4431, 4433, 4434, 4436, 4437, 4439, 4440, 4442, and 4444, the list identifies Kelly Bros. or Crout & Heller as the responsible subcontractor with a question mark at times presumably questioning which of the two was responsible. Complainant was not identified with these latter items. (Complainant’s Ex. 57-58, 61-64). Thus, if in fact Gino’s Finishing did work for Respondent relating to doors and frames for third and fourth floor rooms, there was insufficient evidence presented to show that that work was within Complainant’s scope of work, or within the scope of work of other subcontractors of Respondent such as Kelly Bros. or Crout & Heller. Accordingly, the Tribunal finds this backcharge to also be unwarranted.

6. Lastly, the Tribunal does not find as supportive of Respondent’s position the series of communications from Respondent to Complainant (Respondent’s Ex. 4) that reference supplementing Complainant’s manpower on May 21, 2017 (Respondent’s Ex. 4 - 000093)), and continuing with that supplementation on June 1, 2017 (Respondent’s Ex. 4 - 000097)). Had Respondent supplemented Complainant’s workforce with other subcontractors as was represented in the communications, presumably Respondent would have presented evidence of May-June 2017 invoices from these subcontractors. Rather, Respondent submitted evidence of invoices reflecting subcontractor work of Tradesmen and Gino’s Finishing only dating back to July 11, 2017, which is inconsistent with Respondent’s May-June 2017 communications claiming it had already supplemented Complainant’s work.

7. Delay damages backcharges. Respondent sought to backcharge Complainant the amount of $61,000.00 in Change Order No. 3 for Complainant’s alleged delay in completing the project. Whether Complainant can be backcharged for alleged delay damages may be questionable. First, Section 14.5 of the subcontract does afford Respondent the right to backcharge Complainant for any costs associated with the acceleration of any work of subcontractors caused by Complainant. (Respondent’s Ex. 1 (000010)). However, there was no competent evidence presented of the costs Respondent incurred due specifically to the acceleration of subcontractor work, if any. Further, while Section 14.5 also assigns responsibility to Complainant for all damages incurred for any Complainant delay, the provision does not expressly authorize Respondent to backcharge for such damages as it does for subcontractor work acceleration costs.

Even if Complainant could be backcharged for delay damages, the Tribunal is not persuaded from the evidence presented of the extent, if any, of Complainant’s responsibility for any delay of the overall construction. Nothing in the way of original or revised schedules prepared during the course of the work in 2017 was presented to show when Complainant was to commence or complete its work. Further, while there was evidence of delay on the construction job, there was no direct evidence that Complainant as opposed to any other subcontractor caused the delay and if Complainant did cause any delay, there was no competent evidence of the extent of that delay. General correspondence containing complaints of Complainant’s work progress (Respondent’s Ex. 4) does not support a finding of delay on the part of Complainant. Further, the unsigned Change Order No. 3 (Respondent’s Ex. 3), prepared after the entire job was complete and by the project manager who was not present at the hearing, is insufficient to support a finding to backcharge Complainant the amount of $61,000.00 for alleged delay. No evidence was presented to justify a finding that Complainant delayed the construction by 20 days, or any other length of time, or should be responsible for 50 per cent of the delay damages incurred by Respondent under its general contract with the owner. Similarly, with respect to the $1,050.00 per day of general conditions costs for 20 days that Respondent seeks to backcharge Complainant in Change Order No. 3, there was no evidence presented whatsoever to substantiate that amount. Accordingly, while Complainant may very well have contributed to delay on the job, the evidence presented was insufficient to support a claim for backcharges in that regard.

8. The parties further argued as to when amounts, if any, became due to Complainant under the Prompt Pay Act or the general terms of the subcontract regarding retention payments. In either case, in finding the award of backcharges to be unsupported, the Tribunal finds that the amount in question did not become due to Complainant until after the owner paid Respondent its retention payment in November 2017, or March 2018, but in either case the amount due Complainant is now long past due.

9. In this matter, Respondent failed to pay the amount of $44,140.95 to Complainant for materials or services rendered in connection with Respondent’s operations as a contractor. Complainant has established that Respondent’s license should be disciplined for a violation of A.R.S. § 32-1154(A)(10).

RECOMMENDED ORDER

Based on the foregoing, it is recommended that on the effective date of this Order, Danson Construction, LLC’s, License Number 247197 is suspended until the Registrar receives and accepts written verification that Danson Construction, LLC, has paid $44,140.95 to Complainant in certified funds.

It is further recommended that if and when the Registrar receives and accepts Respondent’s evidence that it has paid Complainant $44,140.95 in certified funds, the Registrar may close this Complaint.

In the event of certification of this Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the Order will be five days from the date of the certification.

Done this day, March 25, 2020.

/s/ Roger Geddes

Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director

Registrar of Contractors

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